In emerging markets large banks have typically focused on corporate finance rather than small and rural business lending. This has been driven by high operating expenses associated with underwriting and servicing these loans and a lack of traditional credit-risk information in providing in these segment.[2]<\/a> However, the growing penetration of digital technologies such as mobile and smart phones banks is lowering banks\u2019 cost of accessing these consumers.<\/p>\n Equity Bank in Kenya Equity Bank has \u201cmore than 9\u00a0million customers, making it the largest bank in terms\u00a0of customer base in Africa and having nearly half of bank accounts in Kenya.\u201d[3]<\/a> Their strategy is to become an \u201call-inclusive financial services provider with a growing pan-African footprint\u201d through delivering high volume and low margin growth[4]<\/a>. Equity Bank\u2019s annual reports from the early 2000s (see for example, Equity Bank Annual Report from 2005<\/a>) consistently emphasize growth in staff, branches, and ATMs with growth in customers and assets as the model through which they would achieve this[5]<\/a>; however, the bank in 2015 shows a 4% growth in its customer base alongside a 7.4% decrease in its staff[6]<\/a>, indicating a shift towards more efficient growth.<\/p>\n To catalyze this leaner growth, the bank will leverage Kenya\u2019s impressive 90% mobile phone penetration and 44% smart phone penetration.[7]<\/a>. They are\u00a0shifting away from the traditional relationship banking value proposition of service in order to instead focus on delivering value through convenience and accessibility. <\/strong><\/p>\n A key manifestation of this was Equity Bank’s\u00a0July 2015 launch of Equitel, a\u00a0mobile virtual network operator operating on Airtel\u2019s network enabling banking transactions for customers. Chief executive James Mwangi underlined the value of Equitel, \u201cThe biggest problem<\/strong> with accessing a bank is not bank charges, it is the cost of access<\/strong>. I will have to go 70km to where the bank is; I will have to pay public transport; I will have to spend the whole day to get to the bank\u2026.If we really want the masses and low-income people to join banking, then we should make financial products very affordable, and that is the value proposition that we are making to the market<\/strong>.\u201d[8]<\/a> Equitel offers the lowest mobile banking charges out of all players in the market[9]<\/a> and now the majority of the Equity\u2019s loans are disbursed via mobile phones via their short-term, low interest Eazzyloan scheme[10]<\/a>.<\/p>\n While the growth of Equitel will help Equity serve a greater number of underbanked customers at a lower cost, there are two\u00a0additional steps it should take to ensure that they are able to deliver on their promise of affordability and convenience.<\/p>\n First<\/strong>, high\u00a0smart phone penetration enables Equity to access a treasure trove of mobile behavioral data and to therefore\u00a0better segment customer risk<\/a>, price in the risk of default, and shift their customer base to a less risky clientele. This\u00a0data and risk-based pricing would bolster Equity’s long-term\u00a0ability to offer lower price products in the future.<\/p>\n Second<\/strong>, Equity should leverage\u00a0mobile phone data to more effectively market their products to customers. Partnering with mobile data analytics such as Cignifi might help them segment their customers and push appropriate products to them. Whereas in the past a customer may have needed to commute many miles to get to the nearest bank, Equity now has the data and ability to\u00a0predict and deliver what customers want directly to their fingertips.<\/p>\n Lastly,\u00a0in its transition to providing increased affordability and convenience through mobile schemes, it is important to note that Equity is making a bet against its existing brick and mortar operations.\u00a0As shown earlier, branch staff are being let go in tandem with the growth of mobile banking. This has the potential to be a tumultuous transition with lots of PR risk\u00a0if Equity pushes forward too quickly, and they must therefore be sure to manage internal expectations and find alternative employment opportunities for their staff.<\/p>\n Word Count: [769]<\/p>\n [1]<\/a> Wings, Heinz, and Heinz Beno\u0308lken. Banking 3.0 Trends, Bru\u0308che, Gescha\u0308ftsmodelle, Spielregeln. Herzogenrath: Shaker Media, 2013. Print.<\/p>\n [2]<\/a> In spite of these challenges, many large banks do have large portfolios of small business and rural loans; however, these portfolios are often purchased from smaller niche financial institutions that perform the loan underwriting and servicing, and they are usually purchased as a result of regulatory requirements for serving BOP customers.<\/p>\n [3]<\/a> Equity Bank Limited. http:\/\/ke.equitybankgroup.com\/about-us\/our-history\/our-history<\/a>. 2016. Accessed November 17, 2016.<\/p>\n [4]<\/a> Equity Bank Limited. http:\/\/ke.equitybankgroup.com\/about-us\/our-history\/our-history<\/a>. 2016. Accessed November 17, 2016.<\/p>\n [5]<\/a> Equity Bank Limited. \u201cEquity Bank Annual Report 2005\u201d. www.equitybank<\/strong>group.com\/index.php\/files\/download\/451<\/a>. March 1, 2006. Accessed November 17, 2016.<\/p>\n [6]<\/a> Equity Bank Limited. \u201cEquity Bank Annual Report 2015\u201d. www.equitybank<\/strong>group.com\/index.php\/files\/download\/917. March 1, 2016. Accessed November 17, 2016.<\/p>\n [7]<\/a> Moses Kemibaro. \u201cKenya\u2019s Latest 2016 Mobile & Internet Statistics\u201d. http:\/\/www.moseskemibaro.com\/2016\/10\/01\/kenyas-latest-2016-mobile-internet-statistics\/<\/a>. October 1, 2016. Accessed November 17, 2016.<\/p>\n [8]<\/a> \u00a0Zoe Flood. \u201cKenya’s mobile innovation brings digital money closer\u201d.<\/strong>:\/\/www.bbc.com\/news\/business-28142515. July 4, 2014. Accessed November 18, 2016.<\/p>\n [9] Mpesa Charges. \u201cEquity Bank\u2019s Equitel Kenya, Thin SIM and Mobile Banking in Kenya.\u201d Copyright 2015-2016. <\/strong>http:\/\/www.mpesacharges.com\/equitel-kenya-finserve-and-equity-mobile-banking-in-kenya\/<\/a>. Accessed November 18, 2016.<\/p>\n [10]<\/a> ANJUM H. ASODIA. \u201cMobile phones take over Commercial banks\u2019 loans sector in Kenya\u201d. http:\/\/www.coastweek.com\/3945-Mobile-phones-take-over-Commercial-banks-loans-sector-in-Kenya.htm<\/a>. Accessed November 18, 2016.<\/p>\n","protected":false},"excerpt":{"rendered":" How Kenya’s Equity Bank is leveraging digital footprints to grow its double-bottom line.<\/p>\n","protected":false},"author":2349,"featured_media":19179,"comment_status":"open","ping_status":"closed","template":"","categories":[385,2205,2125,1350],"class_list":["post-19178","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-banking","category-digital-banking","category-financial-inclusion","category-financial-services"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/digitization-challenge-2016\/","yoast_head":"\n![\"untitled\"](\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/Untitled-11-300x231.png\")
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